diff --git a/Lib/test/test_textwrap.py b/Lib/test/test_textwrap.py
index 707aaaa274a..a44184fbc77 100644
--- a/Lib/test/test_textwrap.py
+++ b/Lib/test/test_textwrap.py
@@ -748,6 +748,11 @@ def test_dedent_preserve_margin_tabs(self):
         expect = "hello there\n  how are you?"
         self.assertEqual(expect, dedent(text))
 
+        # test margin is smaller than smallest indent
+        text = "  \thello there\n   \thow are you?\n \tI'm fine, thanks"
+        expect = " \thello there\n  \thow are you?\n\tI'm fine, thanks"
+        self.assertEqual(expect, dedent(text))
+
 
 # Test textwrap.indent
 class IndentTestCase(unittest.TestCase):
diff --git a/Lib/textwrap.py b/Lib/textwrap.py
index 3ad3e18ea89..05e030673a6 100644
--- a/Lib/textwrap.py
+++ b/Lib/textwrap.py
@@ -444,11 +444,15 @@ def dedent(text):
         elif margin.startswith(indent):
             margin = indent
 
-        # Current line and previous winner have no common whitespace:
-        # there is no margin.
+        # Find the largest common whitespace between current line and previous
+        # winner.
         else:
-            margin = ""
-            break
+            for i, (x, y) in enumerate(zip(margin, indent)):
+                if x != y:
+                    margin = margin[:i]
+                    break
+            else:
+                margin = margin[:len(indent)]
 
     # sanity check (testing/debugging only)
     if 0 and margin:
diff --git a/Misc/ACKS b/Misc/ACKS
index b6089fdaac1..f8fcccf6113 100644
--- a/Misc/ACKS
+++ b/Misc/ACKS
@@ -847,6 +847,7 @@ Mark Levitt
 Ivan Levkivskyi
 William Lewis
 Akira Li
+Robert Li
 Xuanji Li
 Robert van Liere
 Ross Light
diff --git a/Misc/NEWS b/Misc/NEWS
index 7e7534da507..638964ec361 100644
--- a/Misc/NEWS
+++ b/Misc/NEWS
@@ -45,6 +45,10 @@ Core and Builtins
 Library
 -------
 
+- Issue #21827: Fixed textwrap.dedent() for the case when largest common
+  whitespace is a substring of smallest leading whitespace.
+  Based on patch by Robert Li.
+
 - Issue #25447: The lru_cache() wrapper objects now can be copied and pickled
   (by returning the original object unchanged).